Guinness Nigeria Plc experienced a worse performance in the second quarter than in the first, which has extended its falling profit from 32 per cent in the first quarter to 54 per cent at half-year to close at N4 billion for the six months of operations.
The company’s half-year interim financial report made up to December 2022 shows accelerating cost increases against a slowdown in sales revenue.
This adverse development created a wider profit drop of 73 percent quarter-on-quarter in the second quarter to N1.27 billion, down from an after-tax profit of N2.75 billion it posted for its first quarter outing.
Leading the cost increases is finance cost, which multiplied more than 22 times in the second quarter to stand at N4.25 billion for the quarter. This is a much gain in speed after more than doubling at 131 percent to about N2.5 billion in the first quarter.
With the flying speed growth in finance expenses, the company’s half-year finance cost of N6.7 billion is already more than three times the closing finance cost of N2.1 billion for the entire 2022 financial year ended June.
A moderating effect came from an equally rapid increase in finance income, which jumped more than six times quarter-on-quarter to over N800 million for the second quarter. Yet, net finance expenses soared almost uncontrollably from only N60 million to N3.45 billion over the same period.
Another major rising cost for Guinness in the second quarter is administrative expenses which rose by 69.4 percent quarter-on-quarter to N5.2 billion for the quarter. That caused a drop of 6 per cent in operating profit during the quarter to N6.6 billion.
The two big cost increases consumed more than a moderate increase of less than N4 billion or 6.4 per cent in sales revenue, amounting to N65.6 billion for the second quarter. This is a slowdown from an increase of 11 per cent in turnover to N52.8 billion in the first quarter.
The company’s half-year numbers show sales revenue of N118.45 billion, which is an increase of 8.5 per cent year-on-year.
Management has succeeded in keeping input cost under control so far in the year at an increase of less than 5 per cent to N76 billion at the half year. This is the only cost saving area for the brewing company and the moderated behaviour is happening for the second year.
The resulting gain in gross margin permitted an increase of N5.8 billion or 15.8 per cent in gross profit year-on-year to N42.3 billion.
The gain however was more than consumed by rising administrative and marketing/distribution expenses – which grew by 16.5 per cent to almost N22 billion and 60.6 per cent year-on-year to N8.8 billion respectively.
The result from operating activities is a decline of 7.6 per cent in operating profit to N12.5 billion for the period.
At N6.7 billion at half-year, finance expenses multiplied more than five times year-on-year. Despite that finance income grew by about 121 per cent to N1.4 billion, net finance expenses advanced more than eight and half times to N5.3 billion at the end of half-year operations.
At N32.5 billion, the company’s interest bearing debts have not increased much so far in the current financial year but a major rise of close to 96 per cent to over N31billion towards the end of the preceding financial year is creating pressure from finance expenses in the current year.
Guinness ended its half-year trading with earnings per share of N1.84, down from N4.03 per share in the same period in the prior financial year.
The earnings outlook for the second half isn’t that promising for Guinness, as the first half represents its critical earning period. In the preceding financial year, the second half accounted for 47 per cent of sales revenue and less than 44 per cent of profit.